PR 20-6A Contribution margin, break-even sales, cost-volume-profit chart, Obj. 2,3,4,5 margin of safety, and operating leverage Wolsey Industries Inc. expects to maintain the same inventories at the end of 20Y3 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs: Direct materials.......... Direct labor ........ Factory overhead.......... $200,000 Selling expenses: Sales salaries and commissions. 110,000 Advertising 40,000 Travel .... 12,000 Miscellaneous selling expense ........ 7,600 Administrative expenses: Office and officers' salaries .......... ... 132,000 Supplies.... .. .......... . 10,000 Miscellaneous administrative expense........ 13,400 Total....... $525,000 It is expected that 21,875 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 27,000 units. (Continued) 040 Chapter 20 Cost-Volume-Profit Analysis Instructions 1. Prepare an estimated income statement for 20Y3. 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units and dollars. 4. Construct a cost-volume-profit chart indicating the break-even sales. 5. What is the expected margin of safety in dollars and as a percentage of sales? 6. Determine the operating leverage